Limited Liability Companies

New York Lawyers Practical Skills Series Limited Liability Companies Michele A. Santucci, Esq.* 2017 2018 * The author wishes to thank Frederick P. Korkosz for his assistance with the sections on foreign limited liability companies. NEW YORK STATE BAR ASSOCIATION

New York State Bar Association Continuing Legal Education publications are intended to provide current and accurate information to help attorneys maintain their professional competence. Publications are distributed with the understanding that NYSBA does not render any legal, accounting or other professional service. Attorneys using publications or orally conveyed information in dealing with a specific client s or their own legal matters should also research original sources of authority. We consider the publication of any NYSBA practice book as the beginning of a dialogue with our readers. Periodic updates to this book will give us the opportunity to incorporate your suggestions regarding additions or corrections. Please send your comments to: CLE Publications Director, New York State Bar Association, One Elk Street, Albany, NY 12207. Copyright 2017 New York State Bar Association All rights reserved ISBN: 978-1-57969-514-9 Product Number: 412408

CONTENTS I. Introduction... 1 II. Tax Background... 1 A. IRS Entity Classification Rules... 1 B. Bulletproof and Flexible Default Statutes... 2 1. Bulletproof Statutes... 2 2. Flexible Statutes... 2 C. Check the Box Rules... 2 III. Differences Between the New York and Delaware LLC Statutes... 3 A. New York... 3 B. Delaware... 3 C. Protection of Dissenters Rights Upon Merger or Consolidation... 4 D. Rights of Members to Amend Voting Provisions... 4 E. Approval Requirements for Transactions Involving Interested Managers... 4 F. Minimum Fiduciary Duties and Limitation of Exculpation and Indemnification of Managers... 4 G. Limitation of Liability and Indemnification of Managers... 5 IV. Formation... 5 A. Name of LLC... 6 B. Contents of Articles of Organization... 6 C. Publication... 7 V. Management of the LLC... 7 A. Duties of Managers or Members... 7 B. Election, Term and Number of Managers... 8 VI. Voting by Members... 8 VII. Meetings of Members... 8 VIII. Capital Contributions and Finance... 9 IX. Members and Membership Interests... 9 A. Admission to Membership... 10 B. Assignment of Membership Interests... 10 C. Liabilities of an Assignee... 10 D. Certificates... 11 E. Withdrawal of a Member... 11 F. Business Transactions Between the LLC and Its Members... 11 X. The Operating Agreement... 11 XI. Dissolution... 12 A. Grounds for Dissolution... 12 B. Winding Up... 13 C. Articles of Dissolution... 13 XII. Merger and Consolidation... 13 A. Dissenters Rights... 14 B. Contents of Certificate of Merger or Consolidation... 15 C. Effect of Merger or Consolidation... 17 D. Conversions of a General Partnership to an LLC... 17 XIII. Foreign Limited Liability Companies... 17 iii

A. Application by a Foreign LLC for Authority to Do Business in New York State... 18 B. Contents of the Application for Authority... 18 C. Publication... 19 D. Amending an Application for Authority to Do Business... 19 E. Certificate of Change to Application for Authority... 20 F. Effect of Filing Certificate of Authority... 20 G. Doing Business in New York State... 21 H. Surrender of Certificate of Authority... 22 I. Termination and Surrender of Authority to Do Business... 22 J. Effect of a Foreign LLC Doing Business in New York Without Obtaining a Certificate of Authority... 22 K. Annulment of Certificate of Authority by the Attorney General... 22 XIV. Professional Service Limited Liability Companies... 23 A. Professionals... 23 B. Articles of Organization... 24 C. Notice... 24 D. Names of PLLCs... 25 E. Filing With Professional Licensing Authority... 26 F. Rendering of Professional Services... 26 G. Professional Liability... 26 H. Death, Disqualification or Dissolution of Membership... 26 I. Voting Restrictions... 27 J. Transfer of Membership Interests... 27 K. Mergers and Consolidations... 28 XV. Foreign Professional Service Limited Liability Companies... 29 A. Professionals... 29 B. Rendering of Professional Services... 29 C. Professional Liability... 30 D. Application for Authority to Do Business in New York... 30 E. Publication... 31 F. Limited Liability Company Act Applicable... 32 G. Regulation of Professions... 32 XVI. Miscellaneous LLCL Provisions... 32 A. Maintenance of Records... 32 B. Transactions of Business Outside the State... 33 C. Limited Liability Companies Prohibited From Interposing Defense of Usury... 33 Appendix A Default Provisions Articles of Organization... 35 Appendix B Default Provisions Operating Agreement... 37 Appendix C Statutory Mandatory Provisions... 41 Appendix D Checklist of Provisions That Should Be Contained in an LLC Operating Agreement... 45 Limited Liability Companies Forms Index... 49 Table of Authorities... 323 About the Author... 329 iv

LIMITED LIABILITY COMPANIES FORMS

INDEX OF FORMS* Limited Liability Company Fee Schedule... 53 Limited Liability Partnership Fee Schedule... 55 NYS Department of Taxation Partnership, LLC, and LLP Annual Filing Fee... 57 Articles of Organization for Limited Liability Company (Form DOS-1336-f)... 61 Application for Reservation of Name under LLCL 205 (Form DOS-1233-f-a)... 63 Certificate of Amendment of Articles of Organization (Form DOS-1358-f)... 65 Certificate of Correction Domestic Limited Liability Company (Form DOS-1365-f)... 67 Certificate of Correction Foreign Limited Liability Company (Form DOS-1367-f)... 69 Certificate of Change of Address of Registered Agent for a Domestic Limited Liability Company (Form DOS-1375-f)... 71 Certificate of Change of Address of Registered Agent for a Foreign Limited Liability Company (Form DOS-1376-f)... 73 Certificate of Change (Domestic Limited Liability Company) under LLCL 211-A (Form DOS-1359-f)... 75 Certificate of Change (Foreign Limited Liability Company) under LLCL 804-A (Form DOS-1362-f)... 77 Certificate of Resignation of Registered Agent for a Domestic Limited Liability Company (Form DOS-1377-f)... 81 Certificate of Resignation of Registered Agent for a Foreign Limited Liability Company (Form DOS-1370-f)... 83 Certificate of Resignation for Receipt of Process under LLCL 301-A (Form DOS-1373-f)... 85 Application for Authority under LLCL 802 (Form DOS-1361-f-a)... 87 Certificate of Amendment of Application for Authority under LLCL 804 (Form DOS-1360-f)... 91 Certificate of Surrender of Authority under LLCL 806 (Form DOS-1379-f)... 93 Articles of Dissolution of Domestic Limited Liability Company under LLCL 705 (Form DOS-1366-f)... 95 Certificate of Merger with Domestic Limited Liability Company Survivor (Form DOS-1372-f).. 97 Certificate of Merger with Foreign Limited Liability Company Survivor (Form DOS-1368-f)... 101 Certificate of Merger with Foreign Limited Liability Company or Foreign Business Entity Survivor (Form DOS-1371-f-l)... 105 Certificate of Conversion of Partnership or Limited Partnership to an Existing Limited Liability Company under LLCL 1006(e)(B) (Form DOS-1364-f)... 109 * Some of the forms contained in this chapter are omitted from the forms CD accompanying this publication because they are government forms. These forms are obtainable from the following government agency: the New York State Department of State (518-473- 2492; <www.dos.ny.gov>).

Certificate of Conversion of Partnership or Limited Partnership to a Newly Formed Limited Liability Company under LLCL 1006 (Form DOS-1363-f)... 111 Articles of Organization of a Professional Service Limited Liability Company (Form DOS-1374-f)... 113 Application for Authority of a Foreign Professional Service Limited Liability Company (Form DOS-1369-f-a)... 117 Certificate of Withdrawal of a Domestic Registered Limited Liability Partnership (Form DOS-1530-f)... 121 Certificate of Withdrawal of a Foreign Registered Limited Liability Partnership (Form DOS-1531-f)... 123 Certificate of Amendment of a Domestic Registered Limited Liability Partnership (Form DOS-1519-f)... 125 Notice of Registration of a Foreign Registered Limited Liability Partnership (Form DOS-1527-f)... 127 Certificate of Registration of Domestic Registered Limited Liability Partnership (Form DOS-1526)... 129 Certificate of Amendment for Registered Foreign Limited Liability Partnership (Form DOS-1520-f)... 131 Certificate of Change of Domestic Registered Limited Liability Partnership (Form DOS-1521-f-l)... 133 Certificate of Change of Foreign Registered Limited Liability Partnership (Form DOS-1522-f-l)... 135 Certificate of Resignation for Receipt of Process (Domestic Registered Limited Liability Partnership) (Form DOS-1528-f)... 137 Certificate of Resignation for Receipt of Process (Foreign Registered Limited Liability Partnership) (Form DOS-1529-f)... 139 Certificate of Resignation of Registered Agent (Domestic Registered Limited Liability Partnership) (Form DOS-1524-f)... 141 Certificate of Resignation of Registered Agent (Foreign Registered Limited Liability Partnership) (Form DOS-1525-f)... 143 Sample Retainer Agreement in Connection with Formation of LLC... 145 LLC OPERATING AGREEMENT Simple Operating Agreement Delaware LLC with One Member... 147 Operating Agreement New York LLC with Professional Manager... 153 Complex Operating Agreement New York LLC, with Options for Various Situations... 167 Operating Agreement of [Delaware] LLC (Manager Managed/SPE Limitations)... 209 Operating Agreement of [Delaware] LLC (Member Managed/SPE Limitations)... 241

TAX CONSIDERATIONS Operating Agreement of, LLC... 275 PROFESSIONAL SERVICE LIMITED LIABILITY COMPANIES Sample Operating Agreement for PLLC... 297

ABOUT THE AUTHOR 329 MICHELE A. SANTUCCI, ESQ. Michele A. Santucci is considered one of the leading business and corporate attorneys in New York State. Ms. Santucci has more than 30 years experience in the private practice area of business, partnership and corporate law and more than 20 years experience in the legal practice of business and professional immigration law. In her corporate practice, Ms. Santucci provides counsel in the formation and operation of business organizations and limited liability companies, drafting organizational agreements and business contracts, corporate dissolution matters and taxation, among other areas. Ms. Santucci has authored more than 35 publications in the area of business and limited liability law, distributed by such legal publishers as the New York State Bar Association, West Publications and Matthew Bender/Lexis Nexis. Aside from her work on NYSBA s New York Lawyers Practical Skills Series, she is a contributing author to West s New York Practice Series General Practice in New York, and currently serves as an editor and revision author for White s New York Corporations, Volume 5 (Matthew Bender-LexisNexis). As a frequent lecturer in the area of business law, Ms. Santucci has served in the various capacities of overall state planning chair, program chair, moderator and speaker for more than 20 Continuing Legal Education programs. In 2008, she presented the CLE program on Limited Liability Companies for the New York Attorney General/New York State Legislature, and served as program chair and moderator for the NYSBA CLE program titled Preparing and Drafting Organizational Documents for LLCs and Corporations. In June 2001, Ms. Santucci was appointed to the 25-member Statewide New York State Bar Association Committee on Continuing Legal Education. Ms. Santucci is admitted to practice in the District of Columbia, New York State, the U.S. District Court Northern District and the United States Tax Court and is a member of the American Immigration Lawyers Association and the Business Law Section of the NYSBA. She received her B.A. in political science from Manhattanville College in Purchase, New York, and her J.D. from George Mason University School of Law in Arlington, Virginia. Since 1997, Ms. Santucci has served as Immigration Legal Counsel to Rensselaer Polytechnic Institute, Troy, N.Y. Formerly, she was a partner in the Troy law firm of Pattison, Sampson, Ginsberg & Griffin, P.C., and is currently of counsel to that firm.